By KAREN L. LEMA, Reporter

Foreign banks that finance many of the country's development
projects are worried lawmakers are hindering the debt-ridden
government from better managing its finances. And their worries,
in turn, can adversely affect future funding for programs
relying on grants or loans from groups like the World Bank,
Asian Development Bank, and the International Fund for
Agriculture Development, a ranking government official said.
"They [banks] have queries whether Congress will be cooperative
in terms of passing the set of legislative measures being
proposed by the Executive. That has always been the question:
whether there is that momentum in Congress," said the official,
who requested anonymity. The official said the banks -- all
multilateral institutions or co-owned and co-funded by many
countries -- aired their concerns during recent discussions on
possible financing for the government's medium-term development
plan. The plan details the government's fiscal and other
economic targets for 2004 to 2010.

World Bank, Asian Development Bank, and the International
Fund for Agriculture Development are working on new Country
Assistance Strategies for the country for 2005 to 2008. These
strategies will detail the banks' social and development
programs for the Philippines, including their financing. The
official said the banks urged the government to also look into
how "the academe and the civil society can help convince the
legislature" to support several bills:

on raising excise taxes on cigarettes and alcohol
products based on their price increases;

on raising the value-added tax rate;

on shifting to gross income from net income taxation;

on a new amnesty for delinquent taxpayers;

on an attrition system that will encourage government
agencies to hit revenue targets;

on a franchise tax on telecommunication companies; and

on removing some tax exemptions given to investors as
incentives.

The banks, in turn, were assured that the "Executive is
exerting all efforts to push the bills in Congress, and convince
[lawmakers] to support their passage." Socioeconomic Planning
Secretary Romulo Neri said previously that the government's
economic tragets could be achieved by improving, among others,
the government's management of its finances. But crucial to this
is the approval of revenue-enhancing bills pending in Congress,
which are projected to earn for the government an additional
PhP100 billion yearly. The government's budget has been in
deficit for many years now. Officials aim to again balance the
budget by 2009, and drastically cut public debts.

At the Palace, President Gloria Macapagal Arroyo asked
Congress to approve by yearend four of the eight "revenue" bills
it had proposed, to assure investors and lenders that the
government was fixing its finances. "The passage of half of the
eight tax measures we have proposed will generate enough
momentum towards putting our fiscal house in order, and generate
the level of confidence to carry our economy forward," the
President told reporters. Lawmakers insist the government should
first fix collection problems before asking for new taxes.
International credit ratings agencies earlier warned of a poor
score for country's debt ratings should Congress fail to approve
any of the revenue bills. A lower debt rating prompts creditors
to ask for a higher premium, and thus raise the cost of
government borrowings abroad. The House of Representatives has
pledged to approve four out of eight bills before yearend: on
tax amnesty, on the attrition system, on higher taxes on
cigarettes and alcohol products; and on limiting tax perks for
business. House Speaker Jose C. de Venecia Jr. yesterday
appealed to lawmakers to approve these bills this year. But the
Senate has so far vowed to approve only the higher taxes on
cigarettes and liquor. Mr. de Venecia said this was also his
priority. "This is our litmus test, otherwise, we will come out
looking irresponsible and irresolute about addressing the fiscal
crisis before the international creditor community," he said in
a radio interview.

Tarlac Rep. Jesli A. Lapus, House of Representatives ways and
means committee chairman, has set a November 15 deadline for the
tax's approval. His committee has approved the amnesty and
attrition bills, and would again discuss fiscal incentives next
week. He said the franchise tax on telecommunications companies
would follow. The bill that will require submission by taxpayers
of statements of assets, liabilities and net worth is expected
to be approved by the House before yearend, he added. The
President, meanwhile, tried to assuage concerns in both chambers
of Congress that the Palace was trying to take the easy way out
of a looming fiscal crisis by seeking new tax measures aimed at
tapping a proven -- but already burdened -- tax base, without
plugging tax leaks. "The fate of our economy truly lies in a
strong executive-legislative partnership," she said. "The
executive will continue to do its part in cleaning up the system
and plug revenue leaks, enforcing political stability and the
rule of law."

The country in August reversed five consecutive months of
trade deficits as its earnings from the sale of goods abroad
exceeded its spending on foreign goods like oil. This was
despite higher oil prices that month, which substantially raised
the country's dollar spending. A small trade surplus of $36
million was reported for August by the government statistics
office yesterday as the annualized growth rate of export
receipts for the month also outpaced that of import spending.
But for the eight months to August, the trade deficit was still
$1.479 billion, slightly down from $1.671 billion in the same
period last year. Exports in August grew by 8.5% year on year to
$25.3 billion, while imports rose by 7.2% to $26.7 billion.

An economist said the country made more money on exports in
August as it benefitted from the growth of the economies of its
trading partners. "Practically, our export market is improving,"
said economist Bienvenido S. Oplas, Jr. of Think Tank, Inc. "It
should be expected that the bills of all oil-importing countries
have gone up because of the petroleum price hike factor. On the
exports side, there are a lot of economic recovery happening, be
it in America, Japan and many other emerging economies," he
added. August import spending grew by 8.9% year on year to
$3.379 billion while export earnings grew by 13.7% to $3.415
billion. In August, spending on imported mineral fuels,
lubricants, and related materials grew the most at 33.82% year
on year, to $428.97 million from $320.56 million. The benchmark
Dubai crude traded at an average $38.54 per barrel in August,
from only $27.60 last year.

Another principal driver of import growth was consumer goods,
with spending rising by almost 15% year on year to $277.74
million from $242.31 million. Durable consumer goods were at the
forefront of the upswing as payments for imported cars and
motorcycles grew by 36.63% year on year to $39.89 million, and
on home appliances by 61.69% to $19.94 million. Spending on
imported food and live animals, also chiefly for food, rose by
20.96% to $163.25 million. "Probably this indicates an
anticipated increase in the buying power of not all but a big
portion of the population. I believe most will be coming from
[overseas Filipino workers]," given large remittances during the
Christmas season, he said. "It is a function of [workers'] money
coming in and seeking plenty of goods to buy. Some of these
goods are not produced locally, so we have to import them," he
added. The August import bill for raw materials and intermediate
goods, which represent about 38% of total, also went up by 6.63%
year on year to $1.240 billion. These include unprocessed and
semi-processed raw materials like wheat, corn, unmilled cereals,
inedible crude materials, unmanufactured tobacco, feeding stuffs
for animals, and chemical and chemical compounds, etc.

Spending on imported capital goods (also 38% of all imports)
-- such as power generating machines, telecommunications
equipment, land transportation equipment except passenger cars
and motorcycles, and aircraft, ships and boats -- even declined
in August by 1.28% year on year to $1.241 billion from $1.257
billion. Electronics and components, which accounted for 43% of
the total import bill, were the top import items in August.
Nonetheless, spending on them actually fell by 2.89% year on
year to $1.437 billion from $1.480 billion. Electronics were
followed by mineral fuels and lubricants, industrial machinery
and equipment, cereals and cereal preparations, and transport
equipment.

Other top imports were iron and steel; textile yarn, fabrics,
made-up articles and related products; plastic in primary and
non-primary forms; telecommunication equipment and electrical
machinery; and organic and inorganic chemicals. In August, Japan
was the country's biggest source of imported products with
18.36%, or $621 million, of the total import bill. Its total
trade with the Philippines hit $1.289 billion. The Philippines
also enjoyed a $288-million trade surplus with the United
States, with total trade at $1.408 billion. Its trade surplus
with Singapore totaled $8 million, with total trade at $512
million. Total trade with the People's Republic of China,
Taiwan, and Hong Kong was $441 million, $430 million, and $397
million, respectively.

MERCHANDISE
IMPORTS
F.O.B. Value in Million U.S. Dollars

TOP 10 IMPORTS

AUG-04

AUG-03

Electronics
Products

1,436.93

1,479.62

Mineral Fuels,
Lubricants

428.97

320.56

Industrial
Machinery & Eqpmt

130.78

139.52

Cereals and
Cereals preparation

98.63

56.56

Transport
Equipment

95.04

100.31

Iron and Steel

85.72

72.31

Textile
yarn,fabrics made-up Articles & related products

78.55

64.71

Plastics &
Non-primary forms

73.48

64.30

Telecom. Eqpmt/Electr.
Machine

66.84

75.72

Organic and
Inorganic Chemical

66.00

53.13

Source:
National Statistical Office

In a memorandum for President Gloria Macapagal-Arroyo,
National Economic and Development Authority (NEDA) chief Romulo
L. Neri said the August import growth indicated rising consumer
demand. He particularly noted the double-digit increases in
import spending for telecommunication products, medical and
industrial instrumentations, and automotive electronic products.

"This is an indication of the robust growth in call/contact
and business process outsourcing services, and the medical and
health industry," Mr. Neri said in a statement.

University of the Philippines economist Ernesto Pernia said
rising imports may signal well for exports for September. "Our
export growth for September will be okay, but exports for
October to December may slow down due to expected slowdown in
global demand," he said.

As for the $36-million trade surplus for August, he said this
was due largely to the pick-up in world demand for electronics
in July and August.

Mr. Pernia also noted the country's oil bill these past few
months was lower than those in the May-June period, as the
country got a reprieve from sharp increases in global oil
prices. -- Rizzarene S.
ManriquewithJennifer A. Ng

Oils and fuels are forecast to become more expensive this
week, with production uncertainties in oil-exporting countries
seen continuing to push up world oil prices. But small oil
retailers belonging to the Independent Philippine Petroleum
Companies Association, which account for about 15% of the local
market, said diesel prices were likely to rise first. Total
Philippines Corporation had already raised its diesel and
kerosene prices by 35 centavos per liter last night. Other oil
companies had yet to announce price increases as of press time.
Energy Secretary Vincent S. Perez Jr. asked oil companies to
limit any price hike, even as he warned of even higher fuel
prices in coming months. "Prices have continued their relentless
march higher and are expected to be in the upward trend until
the end of the year with the coming of winter season in the
Northern Hemisphere. We have to brace ourselves," he said in a
statement released yesterday. Tight supply of diesel, which is
used as heating fuel in the United States and Europe, has kept
its price on steady uptrend, Mr. Perez said. There were also
disruptions in production because of an oil workers' strike and
threats of rebel attacks in Nigeria, production losses in the
Gulf of Mexico due to several hurricanes, continuing violence in
Iraq, and the ongoing legal and financial problems of Yukos,
Russia's largest oil company.

For his part, businessman Raul T. Concepcion said he would
discuss with oil companies the possibility of weekly oil price
increases. He also said the Consumer and Oil Price Watch, which
he heads, would not object to higher diesel prices by Total and
Caltex Philippines Inc., given their need to recover about
PhP1.71 per liter for September. But Mr. Concepcion appealed to
Petron Corp. and Pilipinas Shell not to raise their prices this
week. He said oil refiners companies favored a shift to current
month average (September) from previous month end average
(August) to determine price changes (for October) given the
volatility of world market prices. Energy department data showed
Dubai crude climbed to $37.69 per barrel in October from $35.55
in September, while Singapore-traded unleaded gasoline imported
by retailers rose to $54.88 from $49.04. Singapore-traded diesel
rose to $57.60 from $54.29, while the contract price for cooking
gas (liquefied petroleum gas or LPG) rose to $401.50 per metric
ton from $383.00.

Meanwhile, Independent Philippine Petroleum Companies
Association chairman Fernando L. Martinez said going back to a
regulated oil industry would further push up oil prices. "In a
deregulated industry, competition is the stimulus for oil
companies to excel or make better, and the consumers have the
power of choice," he said. Also yesterdday, the National Price
Coordinating Council, a multisectoral body tasked by law to
monitor prices, has joined calls for an oil price rollback
initiated by Consumer and Oil Price Watch's Mr. Concepcion. In a
statement, the Department of Trade and Industry said it has
asked Mr. Concepcion to brief the council meeting today on his
basis for a price cut. Adrian S. Cristobal, Jr., Trade
undersecretary for consumer welfare, said the council would
study claims that oil companies have accumulated
"over-recoveries" while continuing to increase pump prices. "A
rollback is a definite respite for producers and traders who
rely heavily on fuel for production and in distribution of basic
goods; a decrease in fuel prices will help keep prices stable
and control inflation," Mr. Cristobal said. He urged oil
companies to "reflect the correct prices in their retail
stations."

Noting that the price council's role was to keep prices of
basic necessities and prime commodities stable, Mr. Cristobal
said "deregulation does not mean the government has no role to
play; it must ensure responsible and fair behavior." After
computing the price difference of Dubai crude, Singapore-traded
diesel, and Singapore-traded gasoline as of October 8 vis-a-vis
September, Mr. Concepcion claimed Pilipinas Shell Petroleum
Corp. has an "over-recovery" of 53 centavos per liter for
gasoline and 34 centavos per liter for diesel. Petron Corp. has
an "over-recovery" of 18 centavos for gasoline and 24 centavos
for diesel. Smaller oil firms have a 35-centavo "over-recovery"
for gasoline, but a PhP1.71 "under-recovery" for diesel, he
added. -- Felipe F. Salvosa IIandBernardette S. Sto. Domingo

State-run National Power Corporation (Napocor) will still
need a
PhP1.0775 per kilowatthour rate increase next year, even if
the government assumes about
PhP200 billion of its debts this year, Senator Ralph G.
Recto claimed yesterday. Citing documents submitted by Napocor
to the Senate, he said, "the absorption will only lessen, but
will not take away all the pain of its customers." He noted the
PhP200 billion would just cut debts incurred by Napocor for its
expansion. But the rate hike will pay for operating and interest
expenses, he said. The PhP1.0775-per-kilowatthour increase next
year, if approved by the Energy Regulatory Commission, will
raise electricity cost to PhP4.5461 per kilowatthour. Another
rate increase of 33.37 centavos per kilowatthour in 2006 will
put power cost at PhP4.8834. "The result is that the cost of
power as early as 15 months from now can be 83% higher than the
pre-September 2004 rate of PhP2.48 per kilowatt hour. The
people, as power consumers, will foot the bill of PhP170.8
billion in just two years for bringing Napocor out of the
intensive care unit," Mr. Recto said.

President Gloria Macapagal Arroyo last October 12 ordered the
government to directly assume PhP200 billion of Napocor's debts.
Senator Manuel A. Roxas II had noted this PhP200 billion was
only 34% of Napocor's PhP600-billion debt, and 17% of its
PhP1.2-trillion combined debt and non-debt liabilities,
including payables to electricity suppliers. But the Power
Sector Assets and Liabilities Management Corp. (PSALM) claimed
the debt transfer would help hasten the sale of Napocor plants
to private investors and prevent an increase in electricity
rates. PSALM is the residual company that will assume Napocor
liabilities once the power company is sold. It said that if the
government would not shoulder all of Napocor's debts, their
payment would be passed on to consumers in the form of higher
prices. This, in turn, will adversely affected the
competitiveness of the economy, particularly local industries.
"The PhP200-billion debt absorption is also a necessary step to
complete the sale of Napocor's assets," said pSALM President
Raphael Perpetuo M. Lotilla.

Under the power reform law, "the national government shall
directly assume a portion of the financial obligations of [Napocor]
in an amount not to exceed" PhP200 billion. PSALM has
successfully auctioned four Napocor hydroelectric power plants
but has yet to transfer them to the winning bidders because of
lack of creditors' consent. Mr. Lotilla said Napocor's official
creditors, particularly the World Bank, the Asian Development
Bank, and the Japan Bank for International Cooperation, have
made debt transfer a precondition for consent to the sale and
transfer of Napocor assets. The government aims to raise $4
billion to $5 billion from the sale of Napocor and its network
of transmission lines. It has so far sold three mini-hydropower
plants. It will also auction the Loboc hydroelectric plant in
Bohol on October 27, and Masinloc coal-fired power plant on
November 24.

Meanwhile, a government official said the Asian Development
Bank was considering a new program for the country that could
hasten the sale of state-owned National Power Corp. to private
investors, so as to avert another power crisis soon. One option
is for the bank to give a partial credit guarantee to buyers.
The government has found it hard to sell its power company,
which is heavily in debt, and the company's transmission lines.
-- Carina I. RoncesvallesandBernardette S.
Sto. Domingowith inputs fromK. L. Lema

President Gloria Macapagal Arroyo has vowed to provide labor
flexibility and lower power costs to electronics and
semiconductor companies in a bid to keep the sector, which
accounts for almost 70% of Philippine exports, globally
competitive. Arthur J. Young, Jr., president of the
Semiconductor and Electronics Industries of the Philippines,
Inc., (SEIPI), said the Malacaņan presidential palace adopted
two key industry proposals in a joint meeting of the Export
Development Council and the Cabinet last October 12. Ms. Arroyo
has directed the Labor department to spearhead the
implementation of a compressed workweek scheme, under which 12
hours a day for four days would be considered in compliance with
the 48-hour workweek required by the Labor Code. "This is the
first step to changing the law," Mr. Young told the 6th SEIPI
CEO Forum at the Makati Shangri-La Hotel yesterday.

Calling the Labor Code "antiquated" and "inflexible," the PSi
Technologies, Inc. chief said the Philippines is perhaps the
only country in the world that requires a six-day workweek, with
overtime pay for work in excess of eight hours a day. The
President has also directed the acceleration of SEIPI's proposal
for the industry to directly connect to electric power
producers, Mr. Young said. SEIPI is set to meet the Energy and
Trade departments, and power generation and transmission
companies. Without going into specifics, the SEIPI president
said direct connection would result in "significant savings" and
make power costs "fairly competitive with China."

Last October 4, the Energy Regulatory Commission removed
cross subsidies under which large firms partly pay for power
consumed by residential customers. Mr. Young noted that growth
in electronics and semiconductor exports continued to be below
par at 9.3% year-to-date, as against world growth of 35%, which
he attributed to lack of investments. Electronics and
semiconductor investments have in fact declined for the last
three years from $1 billion in 2001. Latest data placed
investments in the sector at
PhP15.3 billion year-to-date. "The industry spends today for
growth tomorrow. The key challenge is to bring in more
investments," he said. At the same forum, investment bank Bear
Stearns gave a positive economic outlook for the region and the
Philippines. Dr. John R. Stuermer, managing director, cited high
foreign exchange reserves and large current account surpluses
among Asian countries. And despite pronouncements of a "fiscal
crisis," the Philippines is actually no different from its
neighbors in terms of budget deficits and inflation, he said.
-- Felipe F. Salvosa II

Semiconductor company Texas Instruments, one of the biggest
electronics companies in the world, is investing $300 million
(around
PhP16.8 billion) in two to three years for new product lines
to be manufactured in the country. Norberto A. Viera, president
of Texas Instruments Philippines, Inc., said the capacity of the
firm's facility in Baguio in northern Luzon would be increased
by 50%. New products to be manufactured there include stack dies
used in third generation or 3G phones. These are currently
manufactured in Japan and Korea, but Texas Instruments has
decided to also produce them in the Philippines starting next
year. Texas Instruments will also start producing here its
trademark OMAP processors and "performance" ball grid arrays
used for networking and DSL applications. Of the $300 million,
$50 million will be spent for a new building. The rest will be
for capital expenditures, equipment, and a number of
requirements for the new products, Mr. Viera said.

Texas Instruments Philippines currently produces 100% of the
digital signal processors or DSPs for Nokia mobile phones, and
80% for Siemens and Ericsson. Headquartered in Dallas, Texas, it
is the world's leading designer and supplier of digital signal
processing solutions, the engines driving the digitization of
electronics. Major businesses also include calculators,
productivity products, sensors and controls, and technologies
for digital light products. Texas Instruments has manufacturing
and sales operations in more than 25 countries. Mr. Viera said
his company's sales forecast for 2004 was $3 billion, up by 10%
from 2003 on account of the "normal" growth in the digital
cellular sector. Next year, the company expects to sell 5% to 6%
more with the electronics sector forecasted to grow by 10% to
11%, he said. The $300-million expansion project is being timed
for the expected stronger growth in 2006, Mr. Viera added.
-- F. F. Salvosa II

By KAREN L. LEMA, Reporter

While the Department of Budget and Management (DBM) wants
Congress to pass the 2005 national budget, it sees at least one
positive side to reenacting the 2003 budget anew. Reenacting the
PhP861-billion budget will result in a budget deficit below
the PhP184-billion ceiling set for next year, Budget
undersecretary Mario Relampagos said in a telephone interview.
This is because expenditures will be kept at 2003 levels, while
revenues are seen to increase more than what had been projected
two years ago when the 2003 budget was being crafted, he
explained. "There are no legal impediments on using a lower
budget for 2005. If that will be the case, we will have a more
favorable deficit. Although it would be better if we have a new
budget because there are incremental programs for 2005; so that
means that the incremental amount needed for these programs may
not be allocated," Mr. Relampagos said. But since there are
projects and programs under the PhP861-billion budget in 2003
that have already been completed, allocations for these projects
can be declared by the President as "savings" and she is allowed
under the law to reallocate these resources to fund her priority
programs such as infrastructure, Mr. Relampagos said.

The Malacaņang presidential palace has appealed to Congress
to approve the PhP907.6-billion proposed budget for next year,
as well as the needed revenue measures promptly, saying
lawmakers should be aware of the repercussions in the face of a
debt crisis looming in two to three years. Senate President
Franklin Drilon on Monday warned that Congress might end up
reenacting the 2003 national budget due to the shift to
line-item budgeting. Line-item budgeting specifies actual
projects and their funding and is expected to be more tedious
than the previous system of lump sum budgeting.

Finance undersecretary Eric O. Recto, however, said he could
not see why the reenactment of the budget should delay the
passage of eight Palace-backed revenue proposals. "The revenue
measures, if passed in the form we have proposed, will get us
out of the rut," Mr. Recto told reporters. He remains optimistic
that the Executive branch could convince Congress to act on the
four revenue measures that the Department of Finance wants
enacted before the end of the year. These are the proposed tax
amnesty, the long-awaited indexation to inflation of "sin" taxes
on tobacco and alcohol, a law improving accountability among
corrupt tax collectors and the rationalization of fiscal
incentives. But the legislature, now on a month-long break, is
running short of time with another week-long recess due next
month and an adjournment for Christmas on December 20.

The Bangko Sentral ng Pilipinas (Central Bank of the
Philippines, or BSP) expects prices of basic goods and
commodities to have risen faster in the year through October
because of skyrocketing oil and food prices. Inflation -- the
upward movement in the general price level -- likely breached
the 7% mark in October due to the surge in oil prices, officials
said. "It is higher than the September figure," BSP Deputy
Governor Amando M. Tetangco, Jr. said in a statement yesterday.
The BSP is still finalizing its inflation forecast for October.
Inflation in September rose 6.9%, its highest level in more than
five years. Rising world oil prices, which affect the local
prices of goods and commodities as well as transport costs, have
led to upward adjustments on inflation expectations.

An official from the National Economic and Development
Authority earlier said inflation October inflation may hit a
range of 7%-7.5%. The official said this is due largely to the
recent round of oil prices and expectations that costs of crude
will continue to increase in the coming weeks. A BSP official
said that while inflationary pressures coming from food prices
have somehow eased in the past months, oil prices would continue
to put pressure on inflation. "Food prices eased in October but
the surge in oil prices continues," the central bank official
said. Oil prices have been shooting up amid uncertainties in
oil-rich countries such as those in the Middle East and Nigeria.
Crude prices rallied to a new high of $55 per barrel in Asian
trade on Monday and $54 per barrel at the New York Mercantile
Exchange last week. The 6.9% September inflation has brought the
year-to-date inflation to 4.8%, just a few notches shy of the
BSP's inflation target of 4%-5%.
-- Iris Cecilia C. Gonzales

The local alcohol industry favors retaining the present tax
rate structure on distilled spirits and fermented liquor, while
importers of premium alcohol brands favor a tax rate based on
alcohol content. In their individual presentations on Monday to
the House of Representatives ways and means committee,
representatives of the Consolidated Distillers of the Far East,
Tanduay Distillers, Distileria Limtuaco and San Miguel Corp.
said they favor the retention of the tax rate structure on
distilled spirits and fermented liquor and an increase in the
tax rates. They added that they recognize the government's need
to raise additional revenues.

The Tax Code defines distilled spirits as including whisky,
brandy, rum, gin, vodka and other similar products, and
fermented liquor as including beer, lager beer, ale and porter,
but excluding tuba, basi and tapuy. Only the Lucio Tan company,
Asia Brewery, Inc., said raising the tax rates is not necessary.
ABI chief financial officer Jose Gabriel Olives pointed out that
right after the shift to specific tax from ad valorem tax in
1997 and after the 12% adjustment in the tax rates in 2000, tax
collection increased in the initial year but went down
afterwards. He added that the tax adjustments in 1997 and 2000
led to negative volume growth for beer. "It is not necessary to
increase the tax rates to increase collections," he said. "Let
us maintain the current tax rates. Only higher volumes will mean
higher tax collections."

San Miguel Corp. manager Cynthia de Castro stated that her
company supports the retention of the tax rate structure and
increase in the tax rates. Consolidated Distillers of the Far
East general manager Ferdinand Masi, Tanduay Distillers
president and chief operating officer Wilson Young, as well as
Distileria Limtuaco executive vice-president Olivia Limpe-An
echoed Ms. de Castro's position, and asked that government
continue to protect local producers like them against imported
distilled spirits by retaining the tax rate structure.
-- Judy T. Gulane

Exports of virgin coconut oil (CNO) could double or even
triple once local product standards, which conform to food
safety standards of the Food and Agriculture
Organization-recognized Codex Alimentarius, are released before
the end of the year. Around 200,000 liters of virgin CNO so far
have been exported mainly to the United States and in limited
markets in Europe, Japan and Korea at prices ranging from $3 to
$8 per liter. Philippine virgin CNO producers have the capacity
to produce around 200 metric tons (MT) to 250 MT monthly. Public
consultations are nearing conclusion, with a third round to be
held October 27 in Ormoc City in Eastern Visayas. These are
expected to resolve minor issues like terminologies that should
be included and removed in the final wordings of the Philippine
National Standards for virgin CNO, Paulo P. Mamangun, Jr.,
president of the Virgin Coconut Oil Producers and Traders
Association said. "Foreign buyers would now have an assurance of
specific quality standards for locally produced [virgin] CNO,
which would entice them to source more from us," he told
BusinessWorld.

Thailand and Singapore have also set standards for virgin CNO,
although theirs are bundled with other coconut oil unlike the
Philippines that eventually would have a specific set for
itself. Virgin CNO is used a health supplement and as an
ingredient in beauty products. The Philippine standards will
eventually classify the process for manufacturing virgin CNO
whether cold process, heat process, or centrifugal process.
Under the draft standards, virgin CNO is defined as coming from
fresh, mature kernel of coconut by mechanical or natural means,
with or without the use of heat, without undergoing chemical
refining, bleaching, deodorizing and does not lead to alteration
of the nature of oil. "The issue of whether cold or hot process
[type of manufacturing] still crops up, but largely it has been
resolved. The issue before on moisture content has been settled
to 0.2% as well as of the fatty acids [content] with the
standard now at 0.2% from 0.5% previously," Mr. Mamangun said.
He noted that as long as new technical data come out that may
warrant a change in the parameters of the standards, the
private-public sector group would consider this information
before the final national standard is issued. --
R. M. Balaba

German carmaker DaimlerChrysler will finally source local
abaca fiber as raw material for composite parts used in its
global car manufacturing operations after years of research with
Leyte abaca experts and growers. The company still has to
determine how much abaca fiber it would purchase from local
growers and at what price, Dr. Werner Muhlbauer of the Institute
of Agricultural Engineering for Tropics and Subtropics in the
University of Hohenheim in Stuttgart, Germany said in a forum
yesterday. "But definitely we would buy [from the Philippines],"
Mr. Muhlbauer said. He was a key resource speaker at the United
Nations Development Programme-sponsored seminar, entitled:
"Abaca: Improvement of Fiber Extraction and Identification of
High-Yielding Varieties." DaimlerChrysler earlier commissioned
Mr. Muhlbauer to study the industrial application of natural
fibers such as abaca since these can replace synthetic fibers in
composites, which recently has become of interest to the
automotive industry because of its economic and ecological
advantages.

DaimlerChrysler was the pioneer in this area and has used
composites in more than 30 components in some of its cars. "The
fiber of abaca or Manila hemp offers great potential for
different industrial applications due to its extremely high
mechanical strength as well as fiber length which could reach
two to three meters," Mr. Muhlbauer said in a study. A
public-private partnership project was earlier set up with the
German Investment and Development Foundation (DEG), Euronature,
the University of Hohenheim and Leyte State University to
achieve sustainable production of consistently high-quality
abaca fibers that could be processed into composite materials
for technical applications. Exports of abaca fiber as of July
were valued at $40.945 million or about 17.8% lower from $49.806
million last year, mostly shipped to the United States and
Japan. -- Rommer M. Balaba

Liquidity among banks prevented premium risk rates from
further moving up. In yesterday's auction, the four-year
Treasury bonds fetched a coupon rate of 11.875%. The Bureau of
the Treasury sold the reissued instrument carrying a coupon rate
of 11.75% only last September 21. It posted then an 11.892%
yield-to-maturity rate. The market is expecting bonds worth
PhP10 billion to PhP11 billion to mature this Friday, and an
estimated PhP6 billion on October 25. "We just need a rollover
of funds. Previous auctions show that the market has enough
money to buy government securities like the funds supposedly
earmarked for corporate loans," a trader at a local bank said.
Tenders reached as high as PhP8.595 billion against a public
offering of PhP4 billion. The auction committee awarded all
bids. "What we [saw was] a slightly upward bias. The strong
demand was already expected. There are many reasons for the
[slight increase] but the main factor should be inflation," said
Finance Undersecretary Eric O. Recto, who took over the
chairmanship of the auction committee from National Treasurer
Mina C. Figueroa, who resigned effective October 16.

The government's inflation target for the year is 5.4%. For
September alone, inflation hit 6.9% -- the highest in three
years. Mr. Recto said, however, that a "slew of good news
coming" could temper the rise in debt yields. Besides market
liquidity, he also said the government was on the right track in
generating revenues as the Bureau of Internal Revenue exceeded
its September collection target. The bureau reported that it
surpassed the month's target by 1.05% with revenues of PhP33.746
billion. Year-to-date collection was placed at PhP343.848
billion, which was 98.44% of the 2004 goal. "I hope [the good
news] continues so that we would be able to borrow reasonably,
not cheap because that is not our objective. To borrow cheaply
is relative," Mr. Recto added.

Meanwhile, a trader at a foreign bank said the bond rate at
present was not an indication of how interest rates will move.
"There is no push in interest rates either way," the trader
said. Another trader said, however, that comparing yesterday's
rate to that of August 24 indicated concerns over the country's
fiscal situation. "We still have rising crude oil prices as well
as other local issues," the trader said. Oil prices rose to $55
a barrel on Monday. "However, the rates are already good, that's
why bids were oversubscribed. The four-year paper is already
near 12% which is already comparable to the five-year paper," he
added.

PESO

Meanwhile, the Philippine peso yesterday extended its rally
against the US dollar as it appreciated by almost six centavos
despite a cautious tack from the market. "We figured that there
was this foreign bank which was selling heavily. It's not
everyday that you see a foreign bank do that. Usually, the net
sellers are the local banks. I guess there was a big chunk of
their inflows and that they needed to sell," a trader said. The
trader added that around $20 million was infused by the bank.
Total volume of transacted dollars dropped to $115.5 million
from $122 million previously, indicating a below-average level.
"This should mean that banks are not really 100% convinced to
move in a firm direction. There are those keeping on to their
dollars," the trader added. At the Philippine Dealing System,
the country's electronic currencies exchange, the peso averaged
stronger by more than three centavos to PhP56.376 from PhP56.407
the other day. It capped its intraday low at its opening value
of PhP56.40 against the dollar. The peso finished at its
intraday high of PhP56.355. The local unit is expected to move
from PhP56.30 to PhP56.40 today. -- Ira P.
Pedrasa

The multi-million dollar debt service requirements of the
Arroyo administration reduced the resources of the Bangko
Sentral ng Pilipinas in the second quarter, central bank
officials said. They said, however, that the decline in net
worth and net income was no cause for alarm as the monetary
authority's priority is to keep prices stable and not to make
profits.

In its latest balance sheet, the central bank reported that
its total resources -- comprised of foreign reserves -- fell by
PhP6.6 billion in the second quarter of 2004 compared with the
level in the previous quarter. This resulted in a PhP9.8-billion
or 4.7% decline in net worth. As of the period, the monetary
authority placed its net worth at PhP197.7 billion, down from
the previous quarter's PhP207.5 billion, as the country's
international reserves fell by $156 million. It said
$881-million government debts matured in the second quarter or
roughly PhP49 billion at the current rate of exchange.

The local branch of Bank of America was recently delisted by
the Bureau of the Treasury in its roster of government
securities eligible dealers. The Treasury said the bank had
ceased to be a dealer effective as early as September 3. Its
delisting means that it can no longer participate in the auction
of government securities. Officials of the bank were unavailable
for comment as of presstime. "They requested for it as they have
reduced their government securities business," ex-National
Treasurer Mina C. Figueroa said. The bank's move came ahead of
Circular No. 2-2004 issued by the Treasury which limits the
participation of some dealers in debt auctions. The Treasury
told banks as early as September of its intention to classify
them as either primary or ordinary dealers as well as plans to
increase the volume of competitive bids in each auction.

By ROULEE JANE F. CALAYAG

Members of the newly created Market Integrity Board of the
Philippine Stock Exchange (PSE) buckled down to work yesterday
after meeting with brokers in a bid to strengthen its
relationship with trading participants. Its chairman, retired
Supreme Court Justice Jose Vitug, said last Monday the board
will be open to the broker community, as he urged members to let
the board know what their concerns are to ensure a relaxed
relationship. "It would be good if brokers will inform the
[integrity board] of their problems so we can work on those.
[But] I hope they would not expect results to come by at the
earliest time they want to be because we need to organize
ourselves and come up with internal rules as we coordinate with
various groups. These are all preparatory," Mr. Vitug said. He
said the board will ensure that all parties are given a fair
chance to explain themselves when complaints are filed against
them before the board metes out a penalty or makes a
recommendation.

NOT NICE

"It is not nice to act without giving others the opportunity
to express themselves first," added Mr. Vitug, noting that he,
like others, used to perceive the stock market as having
something of a bad reputation. The former justice argued that
this case should not be limited to the Philippines because such
perception exists in almost every stock market in the world. "We
[the PSE] have had not a very good perception but this is true
in every place. It is about time that we think good of the
country and its people," Mr. Vitug said. He assured that they
would work on rules to strengthen the cord of integrity at the
exchange. "One of these days, we may come up with some good
rules and the right way to implement them." He said the
integrity board must be aware of what it can do by coming up
with a written agreement. "There could be a way by which,
somehow, we could work without necessarily taking on the power
that is not ours," he added.

The board seeks to go further than policing activities of
market participants, or catching them in wrongdoing or meting
out penalties. "The [board] is tasked with the mission of
nurturing a culture of compliance among market participants,"
said Mr. Vitug, stressing that they will not work in secret
because promoting transparency and fairness is part of their
mission. PSE Chairman Alicia Arroyo said the integrity board is
a welcome development, adding that it was Mr. Vitug's "request
to reach out to trading participants before they start out [by]
soliciting their reactions." "Let me assure you that the
[integrity board] shall also take a more proactive approach to
improve and safeguard the integrity of the stock market through
formulation of compliance-friendly and business-friendly
policies," Ms. Arroyo said in her opening remarks.

PSE President Francis Lim assured that although the board is
still under the PSE, it is only so in as far as administrative
supervision is concerned because the PSE is a private
corporation. "It is administrative supervision not regulatory,"
Mr. Lim clarified. He added that certain mechanisms were put in
place to ensure the independence of the board. These include the
provision the board will no longer be under a committee of the
board of directors of the PSE, that it is composed of respected
leaders and a fool-proof decision-making process. "[The foremost
issue to be tackled by the board] will be the updating of rules
to make them more responsive to the needs of the clients,
especially with the new Securities and Regulations Code," Mr.
Lim said. The creation of the board, which replaced the
governance committee, is part of the PSE's effort to strengthen
its audit, compliance and surveillance capacity. The board shall
oversee the regulatory functions of the market regulations
office, formerly the compliance and surveillance group. Both
entities have full autonomy over their regulatory functions and
are independent from the PSE.

The Manila Electric Co. (Meralco), the country's largest
power distribution firm, plans to seek the approval of its
creditors to refinance $240 million in loans maturing between
now and in 2005, officials yesterday said. Jesus Francisco,
president, said Meralco would also meet its creditors within the
month to seek approval to extend the maturity of Meralco's debts
by five to seven years. "Our target is to get creditors'
approval to refinance $240 million worth of loans before the end
of the year," he told reporters. "If we can't refinance, then we
might have a problem next year." Mr. Francisco did not say how
Meralco planned to refinance its maturing debts. The Meralco
official said creditors need to approve its proposal so the
company could service the last phase of its refund process
amounting to
PhP18 billion ($319.15 million).

Meralco, 25% owned by the government and 23% by Spanish
utility Union Fenosa, is in the final phase of a
PhP30-billion refund to consumers for years of overbilling, which
was ordered by the Supreme Court in 2002. Phase 4 of the refund
process involves commercial and industrial customers with a
monthly consumption of at least 1,600 kilowatt-hours (kWh) of
electricity. Meralco proposed that the refund for commercial and
industrial customers be divided into two phases. State-agency
Energy Regulatory Commission has yet to approve this. Phase 3 of
the refund, amounting to
PhP4.9 billion, covers 850,000 residential customers consuming
more than 300 kWh a month. This phase is expected to be
completed by the end of the year. The first two phases of the
refund program have been completed. Meralco has about four
million customers in Manila and neighboring provinces. Shares of
Meralco A, limited to Filipinos, fell 3.08%, or 50 centavos, to
PhP15.75 on Tuesday, while Meralco B, open to foreigners, lost
3.06%, or 75 centavos, to PhP23.75. Manila's main stock index
fell 0.62% to 1,778.85 points. -- Reuters

Second largest telco Globe Telecom, Inc. is spending about
$350 million for its continuing expansion in 2005. The Ayala-led
company said the outlay will finance its network rollout next
year. Chief Financial Officer Delfin C. Gonzalez said part of
the needed funds will come from foreign financing, while the
balance will come from the mobile phone giant's internal funds.
"We are still trying to finalize the numbers, but most likely we
would have to source about $100 million to $150 million from
external funding. The rest would come from internally generated
cash plus we still have the proceeds of the $100 million which
we did in July," Mr. Gonzalez said.

In July, Globe raised an additional $100 million worth of
eight-year bonds in the international financial markets bringing
its total outstanding bonds to $300 million. The issuance of the
notes was used to bankroll Globe's capital expenditure program
for 2004. It had allocated about
PhP19.7 billion for 2004 for the expansion of its wireless
business. By the first half of the year, Globe has added about
350 cellsites in line with its Phase 10 expansion program. From
its existing 3,600 cellsites, the cellular firm plans to roll
out about 1,000 more. Globe's expansion program is primarily
focused to increase its presence in the mass market through the
creation of more cellsites and the building of distribution
infrastructures such as "over-the-air" reloading schemes to have
a wider reach of the target market.

President and Chief Executive Gerardo C. Ablaza said Globe is
optimistic about reaching targets for mass market expansion by
the end of 2004. "Indicators from second and third quarter show
that we are achieving well in the mass market because we have
significantly increased our coverage in terms of the percentage
or mix of people and the kind of subscribers we have gained," he
said. Mr. Ablaza said Globe's provincial subscribers are now
moving beyond the 50% mark. This, he said, is an important
indicator since most subscribers from the rural areas are from
the mass market. He said Globe sees more opportunity to expand
in the provincial market given the low penetration rate.
-- Beverly T. Natividad

By ROULEE JANE F. CALAYAG,
Reporter

The Philippine stock market yesterday succumbed to
profit-taking yesterday after a mild recovery, driving share
prices to close lower. The main index lost more than what it
gained last Monday. The benchmark Philippine Stock Exchange
composite index (Phisix) dropped by 11.13 to 1,778.85. It opened
at 1,790.74, rose to an intra-day high of 1,791.65 and slipped
to its lowest level for the day at 1,777.32. Astro del Castillo,
managing director of First Grade Holdings, Inc., said the market
continued to consolidate. "[The stock market] is still in a
consolidation mode due to the continued upsurge in oil prices at
the world market, the possible pressure for domestic rates to go
up and the weaker peso," said Mr. del Castillo.

JOLLIBEE

But these were not the only factors that dampened investors'
sentiment. Apparently, investors were not pleased with the
third-quarter report of Jollibee Foods Corp. whose share price
declined to PhP27.50. The country's leading fastfood chain said
its net income for the period rose by 6% to
PhP317 million. Although it ended the quarter positively, the
growth rate was a sharp decline from a 36.8% increase in the
second quarter. The market did not expect Jollibee to post slim
gains. Before it released its report, expectations were high
that it will report double-digit growth. Jollibee said its net
earnings slowed sharply, particularly in August and September,
due to high oil prices that pushed up costs.

Ysmael V. Baysa, Jollibee's chief financial officer, said the
firm made slight price adjustments on products and continued
pursuing operation cost improvement but these were not enough to
immediately offset the impact of cost increases. "Jollibee did
well but its admission of the effects of the increases in oil
prices to the costs of its raw materials was [taken as] a
warning signal that the growth for the second half could be
slower," said Mr. del Castillo.

The all-shares index collected gains of 3.77 at 1,113.99.
Except for the property counter, all the other indices were
down. Mining lost 43.86 at 2,096.69. The commercial-industrial
index dropped 20.04 to 2,809.53. Banks and financial services
slowed down by 6.80 at 492.83. Oil shed 0.04 at 1.76. On the
other hand, property went up 4.13 to 652.41. There were 114
issues traded with more stocks sticking to their previous price
level. Decliners outpaced advancers at 41-26. A total of 894.3
million shares exchanged hands for
PhP850.6 million. Over three billion shares amounting to PhP305.3
million were transacted as odd lots. Main board cross
transactions for 44.9 million shares were valued at PhP480.4
million. Net foreign buying was PhP110.52 million.

ACTIVE STOCKS

Philippine Long Distance Telephone Co. (PLDT), a subsidiary
of Hong Kong's First Pacific Co., closed lower at PhP1,405 but
it remained the most active stock. The Bank of the Philippine
Islands (BPI) and Ayala Corp. ranked second and third most
active stocks. BPI was down at PhP46.50 while Ayala Corp. kept
to its previous level of PhP6.30.

SM Prime Holdings, Inc. (SMPH) of retail magnate Henry Sy,
Sr. was unchanged at PhP7.10. The firm operates 18 shopping
malls across the Philippines, said it will open SM City Batangas
in Batangas City next month. This newest addition to the SM
malls will have a gross floor area of 70,820 square meters.

Last week, the mall developer declared a special cash
dividend amounting to almost PhP5 billion. In a statement, the
country's largest shopping mall developer and operator said a
special cash dividend of PhP4.9 billion, equivalent to 50% of
the par value or PhP0.50 per share, will be paid on or before
Dec. 1 to stockholders on record as of Nov. 12. The special cash
dividend, approved by the board last Oct. 13, brings SMPH's
total dividend payout to PhP6.4 billion with payout ratio of
154% against the 2003 net income.

Most of the active stocks were down, including Digital
Telecommunications Philippines, Inc., International Container
Terminal Services, Inc., Manila Electric Co. B, DMCI Holdings,
Inc., Metropolitan Bank & Trust Co., and Union Cement Corp. Only
four recorded gains. These include Metro Pacific Corp., another
subsidiary of First Pacific Corp., Petron Corp., Ayala Land,
Inc., and sister company Globe Telecom, Inc. Seven issues were
unchanged. Together with Ayala Corp. and SMPH, Aboitiz Equity
Ventures, Inc., the Lopezes' ABS-CBN Holdings Corp., Philippine
Deposit Receipts and First Philippine Holdings Corp., as well as
Filinvest Land, Inc. and Equitable PCI Bank, Inc. all did not
budge. Mostly mining stocks completed the list of gainers. Basic
Consolidated, Inc., a holdings company that has interest in
mining, gained 10.34% at PhP0.16. The firm signed a memorandum
of agreement last week with S.F. Pass International Co., Ltd. of
Thailand for opportunities to develop and explore areas of
investment in the Philippines, Thailand and Asia.

The government plans to give priority to 10 economic areas,
including fashion and healthcare, and encourage more investments
in these sectors through tax perks. That is, if Congress will
approve its proposal to overhaul the prevailing system for the
grant of fiscal incentives. If the Arroyo administration were to
have its way with perks, investment areas under its Investment
Priorities Plan will be limited to information technology and
IT-enabled services, automotive, electronics, mining,
healthcare, tourism, shipbuilding, fashion, garments, jewelry,
and agribusiness. This list, as proposed by the Malacaņan
presidential palace, will also be reviewed every three years by
an interagency body composed of representatives from the
Department of Finance, Department of Trade and Industry, and the
National Economic and Development Authority. The Investment
Priorities Plan is an annual listing of priority industries and
service areas that are encouraged through the grant of fiscal
and non-fiscal incentives, including four to six years of income
tax holidays.

The government's Medium Term Philippine Development Plan (MTPDP),
its economic master plan, justifies the inclusion of agriculture
among priority investment areas. It noted that agriculture "has
exceeded productions targets[and yet] remains uncompetitive due
to high cost of inputs, large post-harvest losses, and the
disruption of extension services due to devolution." "Employment
and incomes are also low due to the low degree of farming
intensity and diversification, and the lack of technological and
enterprise skills of the farmers," the MTPDP added.

In the Investment Priorities Plan for 2004 are economic
activities divided into a national list, a regional list, and a
list for the Autonomous Region of Muslim Mindanao (ARMM). Under
the national list are export projects, mandatory inclusions, and
areas that are supportive of special government programs such as
but not limited to infrastructure upgrading; mass housing;
modernization programs for the agricultural, fishery and the
pharmaceutical sectors; biotechnology; and tourism. The regional
list covers activities for implementation in specific regions
and 80 industry clusters composed of linked industries that take
advantage of the natural advantages of specific locations.

The ARMM list, meanwhile, was prepared by the ARMM Regional
Board of Investments. Also part of the government's fiscal
rationalization bill is the repeal of provisions in at least 25
laws that grant tax perks and exemptions to businesses and
investors. Finance department data showed the government gave
away
PhP229.4 billion in tax perks, equivalent to 5.33% of gross
domestic product or total economic output, in 2003 alone.
Finance officials are also pushing for the lifting of tax
exemptions granted under the value added tax system, including
those being enjoyed by lawyers and doctors, as part of a package
of eight bills being pushed by Malacaņang. Approval of these
measures, which include a number of tax bills, is needed if the
country is to avoid a fiscal crisis, the Palace claims.
-- Karen L. Lema

The peso can recover to below PhP50 to the US dollar next
year, from around PhP56 currently, but only if the country can
raise enough taxes to pay for its operations and drastically cut
its budget deficit, Bangko Sentral ng Pilipinas (Central Bank of
the Philippines, or BSP) Governor Rafael B. Buenaventura said
yesterday. He said the peso, battered by fiscal concerns for
several weeks now, remained undervalued as investors awaited
progress on the government's fiscal reform measures. "Next year,
the peso can fall below PhP50 if investors see that we are well
on our way to overcoming our fiscal crisis through the passage
of all the reform measures," he told reporters. The peso's
recovery will depend largely on the success of administrative
and legislative revenue-enhancement measures committed by the
Arroyo administration, said the central bank governor, an
appointee of former president Joseph Estrada.

Investors and fund managers, he said, are closely watching
the government's attempt to fix its fragile fiscal position. The
Arroyo administration must deliver on new taxes measures that
will help boost state coffers and balance the budget by 2010, he
added. Eight revenue-enhancement measures that are estimated to
raise at least
PhP83 billion yearly are awaiting congressional approval.
Administrative measures include raising various fees of
government agencies, and the use of benchmarks for
income-generating agencies such as the Philippine Amusement
Gaming Corporation. Aside from reform measures, Mr. Buenaventura
said the peso's recovery would also hinge on the successful
recovery of the power or electricity sector. He said investors
would have to see that the power sector problem would be
"resolved satisfactorily," through a price increase as well as
the sale of state-owned National Power Corporation to private
investors.

The Energy Regulatory Commission has already approved a 98
centavos rate increase for the power firm, which wants a PhP1.87
per kilowatthour increase to recover its losses. Mr.
Buenaventura said investors also await the approval and
implementation of financial sector reforms pushed by the private
sector and the central bank. These reforms include the
establishment of a fixed-income exchange for securities and debt
papers, and the creation of a credit information bureau that
will function as a database of corporate and individual
borrowers. Other measures proposed include the corporate
recovery act, which would help rehabilitate troubled companies.
Mr. Buenaventura said the peso could start recovering by this
quarter, noting that remittances from overseas Filipino workers
have started coming in and that corporate demand for dollars has
been satisfied. If the government fails to fix its finances, the
peso can fall to PhP57 to the US dollar starting next year and
stay at this level until the government gets the economy back on
track, the central bank said. In a briefing paper given to
Congress, it said the peso could weaken on the back of modest
capital inflows, but could easily recover if the government
could get a grip on its fragile fiscal position. Sought for
comment, traders agreed that the peso's recovery would depend
largely on new taxes. "Investors will be wary if no new measures
are passed. They will put their dollars elsewhere," one trader
at a foreign bank said. Another trader said that it could take a
while for the peso to recover because "fundamentals are the
problem." "It's not like there's a political situation such as
the Oakwood mutiny or an impeachment trial, so there has to be a
permanent solution," the trader said. "But definitely, it will
strengthen once reforms are in place."
-- Iris Cecilia C. Gonzales

Monetary authorities are still inclined to keep key interest
rates steady, and thus stabilize borrowing costs of consumers
and businesses, despite rising consumer prices or inflation.
They have noted that price increases could be traced more to
shortages in goods, rather than the increase in money in
circulation. Inflation hit 6.9% in the year through September,
its highest in five years, because of rising oil and food
prices. Regulators usually increase interest rates to siphon
excess money in the economy that can push up inflation and cut
the purchasing power of the peso. Debates on whether to touch
interest rates have been spirited among members of the
policy-making Monetary Board, which will again meet on rates on
Thursday. "There were debates, but the votes were still
unanimous [against raising interest rates]," one central bank
source said of the Monetary Board's last two policy-rate setting
meetings.

Bangko Sentral ng Pilipinas (Central Bank of the Philippines,
or BSP) Governor Rafael B. Buenaventura, also a member of the
board, said yesterday that any monetary tightening now, through
higher rates, would be ineffective. He noted that even if key
rates were already at a 12-year low, businesses and consumers
have not been inclined to take out loans, since consumer
spending has been weak. "Increasing interest rates will not help
the economy," he told reporters. Early yesterday, the Bangko
Sentral's advisory committee met to discuss its recommendations
to the Monetary Board meeting on Thursday. Mr. Buenaventura
declined to disclose the committee's recommendation, but said
that there were no indications that rising oil and food prices
would further aggravate inflation. He stressed, however, that
nothing was final yet as far as rates were concerned. "As of
now, we can still hold off [a rate increase], assuming there
will be no further [price] increases. The situation can always
change," he said.

The Monetary Board has kept policy rates unchanged at a
12-year low of 6.75% for overnight borrowing and 9% for
overnight lending, despite rising consumer prices and a recent
increase in US Fed rates. The United States Federal Reserve
System has adjusted US rates for the third straight time last
September 21 to 1.75%. The Monetary Board usually matches a move
by the US Fed to prevent capital flight, when investors shift
funds to economies that offer higher interest rates. ING Bank
chief economist Jose L. Cuyegkeng earlier said that the board
could raise its key policy rates by 25 basis points by yearend
if inflationary pressures would continue to mount. Mr.
Buenaventura, however, said the market has already adjusted
benchmark rates. "Any increase now may just exacerbate the
situation," he added. He also said the Monetary Board need not
match the US Fed rate increase. "We don't have to move with the
Fed, [unless] there are second-round effects of inflationary
pressures," he said. The US market expects the Fed to increase
rates by another 25 basis points by yearend, which will widen
the interest rate differential between peso- and
dollar-denominated bonds. A narrow differential gives investors
incentives to shift to dollar from peso bonds. Bangko Sentral
contends that, for now, the interest rate differential is still
at a comfortable 400 basis points.
-- Iris Cecilia C. Gonzales

Government economic planners approved recently the
rehabilitation of the National Broadcasting Network (NBN Channel
4) at a cost of
PhP550 million. In a statement, the Investment Coordination
Committee of the National Economic and Development Authority (NEDA)
said the project is designed to improve NBN's coverage and boost
its signal. NEDA official Librado F. Quitoriano said the
government would refurbish and upgrade NBN's present
transmitting system, acquire modern digital equipment, as well
as upgrade the facilities of key provincial stations in Baguio,
Cebu, and Davao.

The PhP550 million will be spent on the supply, installation
and commissioning of new television transmitting systems for
Channel 4 Isabela, Channel 6 Mindanao, Channel 7 Jolo, Channel
11 Pagadian, and Channel 13 Tuguegarao. The project also
involves the purchase of broadcasting and production equipment
(in-studio and off-studio) to rehabilitate the existing
broadcast facilities of NBN. "The spare parts and equipment will
be distributed to various stations in the National Capital
Region [Metro Manila], the Cordillera Autonomous Region [in
northern Luzon], and Regions VII [Central Visayas] and XI [Davao
Region in southern Mindanao]," Mr. Quitoriano said in a
statement. He said the project would also involve the purchase
of the "iNEWS Room Computer System," which would replace the now
obsolete computer system that NBN was using for daily
operations. "This software will enable the reporters, editors
and managers to browse, update, share, and archive news items
instantly and more efficiently," Mr. Quitoriano said.

Currently, NBN has only three stations with studio facilities
-- at the Broadcast Complex in Quezon City, and at its Cebu and
Dumaguete stations. NEDA said the studio facility at the
Broadcast Complex was installed in 1991 and has become obsolete.
"Most of NBN's equipment are still analog, whereas Philippine
industry standards are already digital. This has a big effect on
the clarity and quality of video and audio transmissions," Mr.
Quitoriano said. NEDA's said that of the PhP550 million or $10
million for NBN's rehabilitation, 85% or PhP467.5 would come
from the US Export-Import Bank. The remaining 15% or PhP82.50
million is being proposed to be shouldered by either state-run
Development Bank of the Philippines or other Export Credit
Agencies. The Poeple's Television Network, Inc. will serve as
implementing agency for the project, which will last six months
or until March next year. The new broadcast equipment are
expected to be operational by April next year.

SINGAPORE -- This year's surge in Asian property investments
stuttered in September, but analysts still see some sector
bargains among the regions' developing countries. Netherlands
based Global Property Research said Asian property securities,
including stocks and trusts, slipped 0.7% last month, but still
stood 20.3% ahead in the year so far on hopes Hong Kong and
Singapore property values are emerging from a six-year slump.
The book has left some property stocks looking fully valued.

Singapore's City Developments, for example, is trading at a
4% premium to net asset value (NAV) against a long-term average
discount of 9%. Hong Kong's Sung Hung Kai Properties is at a 6%
premium to NAV, while its long-term average discount of 13%.
Analysts say better value, albeit with higher risk, can be found
in Chinese, Malaysian and Phillippine property developers
benefitting from surging demand for housing because of rapid
economic growth, population growth and urbanization. "Valuations
in emerging markets are quite compelling now, especially in
China," said Douglas Sung, head of Asia property research at JP
Morgan in Hong Kong. "Many people are concerned about the
short-term macro outlook -- whether there'll be a soft or hard
landing or an interest rate rise," he said. "But the physical
market is quite stable, prices are quite stable and demand
appears to be still pretty strong."

JP Morgan has an "overweight" recommendation on home builder
Shanghai Real Estate Ltd., which is trading at a 64% discount to
NAV compared to an average 31% discount for Chinese developers.
The firm is priced at eight times 2004 earnings forecast,
against 15-18 times for most Hong Kong property firms. Some
Malaysian firms are also cheap despite surging demand for houses
-- some developers say there is a shortfall of 400,000 homes in
the Kuala Lumpur area. The main risk is that strong demand for
steel in China is causing a shortage for construction in
Malaysia, where steel prices are government controlled, but
analysts see comfortable gains in prospect at last until the end
of next year, albeit with growth focused on geographical
hotspots. "The smart money says 06-07 is the cycle peak," said
an analyst at a foreign broker in Kuala Lumpur. "The Klang
valley and Johor Bahru will see a lot of growth because that's
where the concentration of spending power is." Sunway City is
trading at a 52% discount to NAV and E&O Property Development is
at a 39% discount, compared to an average 22% for Malaysian
developers.

Philippine developers are also revelling in brisk house
sales, thanks largely to increasing remittances from overseas
workers, but investors fret a three-year peak in inflation is
putting upward pressure on interest rates. Filinvest Land is
trading at a 51% discount to NAV, but JP Morgan's Sung was not
keen on the firm because of concerns about refinancing a P2
billion debt due in November. Megaworld Corp. was a better bet,
he said, trading at a 43% discount, against a sectoral average
of 25%. "A lot of these stocks are in early expansion phase --
small companies that could see rapid growth in the next few
years," Sung said. Returns from property in Asia have easily
outstripped the 7.4% returns from equities in Morgan Stanley
Capital International's Pacific index. European property
securities are also on a high, gaining 1.9% last month and 22.4%
this year. North American property stocks slipped 0.2% in
September and are up 14.9% in 2004. Global bonds tracked by JP
Morgan were 3.2% higher in the first nine months of this year,
while MSCI's global equities index is up 3.3%.
-- Reuters

Malacaņang yesterday again downplayed rumors of
destabilization attempts against President Gloria Macapagal-Arroyo,
saying corruption allegations against the military would not
affect the administration's stability. Press Sec. Ignacio R.
Bunye expressed confidence that the entire Armed Forces of the
Philippines (AFP) would rally behind the President, despite
threats of her ouster due to the alleged high-level corruption
in the military. "We have heard of rumors before, but we believe
no amount of destabilization effort would succeed against this
government, and we believe that the AFP is solidly behind the
chain of the command," Mr. Bunye said in a briefing. "The rumors
being perpetrated against military top brass cannot be used to
overturn this present government, which is very sincere in
pushing through with reforms in the armed forces," he added.

The Arroyo government is under fire due to alleged corruption
charges against Maj. Gen. Carlos Garcia. A former AFP
comptroller, Mr. Garcia is undergoing investigation by the
Office of the Ombudsman and two congressional committees on the
issue of his alleged unexplained wealth. The President earlier
ordered the AFP to place the general under court martial,
exercising her powers as the military's commander-in-chief.
However, some camps are launching a signature campaign for the
President's ouster, claiming the President has allegedly failed
to address the widespread corruption in the government. The
President last week already dismissed the destabilization
rumors, saying it would only fail since the government has been
working in addressing the concerns and grievances of the
soldiers. "The military command is firmly pushing the
investigations forward, backed up by the determination to pursue
systemic reforms, many of which are already in place in the
procurement and logistics train," Mr. Bunye said. "These are
solid morale boosters for the soldiery that has now become fully
aware of the government's resolve to respond effectively to
their vital needs and grievances," he added.

Meanwhile, Malacaņang expressed support to the congressional
investigation into Mr. Garcia's unexplained wealth and alleged
military corruption. The Palace was lukewarm, however, to the
proposal of some lawmakers that Mr. Garcia be considered a state
witness for him to divulge who else might be involved in the
alleged corruption activities within the AFP. Justice Sec. Raul
M. Gonzalez last week already dismissed the proposal, saying
considering Mr. Garcia as a state witness was still "premature"
since has not yet given his testimony. --
Jeffrey O. Valisno

The country's envoy to the United Nations yesterday
criticized a Washington-based think tank that claimed President
Gloria Macapagal-Arroyo was a "weak leader." Philippine
Permanent Representative to the United Nations Lauro L. Baja,
Jr. slammed the Heritage Foundation for its "unfounded"
criticisms against Mrs. Arroyo, saying the think tank failed to
recognize the efforts of the President to stabilize the
country's economy. "This is without foundation and out of
reality. Obviously, the Heritage Foundation does not see the big
picture," Mr. Baja said in a statement.

The Heritage Foundation recently issued an assessment that
painted a negative picture of Mrs. Arroyo's leadership by using
the looming fiscal crisis to boost its case. It also noted the
Philippines' "overdependence" on the US for its anti-terrorism
campaign. Mr. Baja, however, argued that the Philippines has
been able to assert itself in the international arena with Mrs.
Arroyo as the commander in chief. "The Philippines has been
cited for its efforts against terrorism in the national,
regional and global aspects. You cannot have a strong
representation in multilateral diplomacy unless you represent
and have the support of a strong leader and a strong
government," Mr. Baja added. The Filipino envoy to the world
body stressed that the rest of the international community have
remained supportive of the Arroyo government and that the
US-based think tank was an isolated voice. "When your views are
sought and when bilaterals with you are requested, that means
you count and you are making a difference," Mr. Baja said.
-- Ma. Eloisa I. Calderon

The Malacaņan presidential palace remains hopeful Congress
will be able to approve the proposed 2005 national budget and
needed revenue measures on time, saying lawmakers are aware of
the repercussions. Senators called on their counterparts in the
House of Representatives to speed up deliberations on the
proposed
PhP907.6-billion General Appropriations Act (GAA) for 2005,
but a congressman said the government will not collapse if the
budget ends up delayed. Senate Majority Leader Francis N.
Pangilinan proposed the conduct of budget deliberations during
the December 18 to January 9 recess to assure the GAA's passage.
House appropriations committee chairman Rep. Rolando G. Andaya,
Jr. of Camarines Sur (southern Luzon), meanwhile, said budgets
have been delayed in the past but admitted government projects
will be threatened the longer it takes Congress to pass the
budget bill.

In Malacaņang, Press Secretary Ignacio R. Bunye said in a
statement that "We hope that our legislators will find time to
iron out any hitches on these pieces of legislation...The world
waits upon our nation to proceed decisively in the business of
economic self-repair and recovery." Senate President Franklin M.
Drilon on Monday warned that Congress might end up reenacting
the 2003 national budget for the second straight year due to the
shift to line-item budgeting. Line item budgeting specifies
actual projects and their funding and is expected to be more
tedious than the previous system of lump sum budgeting. The
reenactment of the budget may also delay the passage of eight
Palace-backed revenue proposals. Delays on the approval of these
bills, in turn, may lead to a downgrade in the country's credit
standing. "The proposed national budget for next year and the
tax measures pending before the Congress are key elements in the
President's overall reform agenda to stabilize the economy and
to put our fiscal house in order," Mr. Bunye said.

Mr. Bunye yesterday expressed confidence that Congress will
likely approve the proposed increase in the excise taxes of
cigarette, alcohol and other "sin" products by yearend.
"Indexation of sin taxes would be very important. If this would
be approved, we will be sending a very clear signal that we are
serious in putting our financial house in order," he said.
Malacaņang, however, declined to take a more active role in
convincing lawmakers to immediately act on the GAA and the
revenue bills, citing the independence of Congress from the
Executive. "The Executive department proposes, the Congress
disposes. We leave it to the sound judgment of the Congress to
determine which is beneficial," Mr. Bunye said. Mr. Pangilinan,
meanwhile, told a briefing "I'm proposing to amend the
legislative calendar to spend more time for budget
deliberations. We will see if other Senators are willing to meet
beyond December 18 which is the start of the Christmas break."

The PhP907.6-billion GAA for next year is being deliberated
in the House of Representatives. Only after the House has
approved the measure will the Senate conduct its own
deliberations. "We need to work overtime. Everything depends on
how the Lower House can pass budget proposal," Mr. Pangilinan
said. He said that when the Lower House passes the GAA, the
Senate will need five to 10 days to approve it, including the
bicameral conference meeting. He said the constitution does not
prevent a second reenactment of the budget but stressed that a
repeat will not be good for Congress. Senate finance committee
chairman Manuel B. Villar Jr. also said a second reenactment
means Congress will have failed to do its constitutional duty.
Mr. Drilon said the 2005 budget will likely be passed by
February, giving two months use of the 2004 reenacted budget.
"It is expected that we will not approve the budget by the end
of 2004. However, we assure that the budget will be approved on
or before February," he told a separate news conference.

Mr. Andaya, meanwhile said that three times since 1987, the
GAA was approved two months into the fiscal year it was supposed
to take effect. These were in 1997, 1998 and 2000. "One was even
signed as late as June 1991," he said, "while the 2003 budget
was signed into law in April of that year." In contrast, the GAA
was approved only six times since 1987 before December 31 of the
prior year. Congress has no deadline as to when it should finish
deliberating on the national budget -- prepared and transmitted
to Congress by the Department of Budget and Management -- but it
is ideal that a new budget be operational by January of the new
fiscal year. "The government will not collapse, public offices
will not shut down, government services will not grind to a halt
if no budget law is approved on the first day of next year," Mr.
Andaya pointed out. Mr. Andaya, however, told BusinessWorld
that failure to approve the GAA will have negative consequences
on government's programs for 2005. Foremost among these programs
is the hiring of 10,000 new teachers by the Department of
Education (DepEd), to address the acute shortage of teachers in
public schools, and infrastructure projects.

Based on the PhP907.8-billion proposed national budget for
next year, DepEd gets the biggest budgetary allocation of PhP112
billion. It is followed by the Department of Public Works and
Highways with PhP49 billion, Department of National Defense with
PhP46 billion and the Department of Interior and Local
Government with PhP44 billion. The Department Tourism is
allocated a total of PhP1.13 billion, which is a substantial
increase over this year's budget, reflecting the government's
prioritization of this sector. The Autonomous Region in Muslim
Mindanao is allocated PhP7 billion, which represents a 29%
increase over this year's allocation, reflecting the
government's intent to address the region's 57% poverty
incidence. The committee on appropriations, Mr. Andaya said, is
working hard to approve the proposed national budget by the end
of November, and as it is, has been conducting whole-day
hearings, four times a week, since October 11 when Congress
should have been on recess. Mr. Andaya regarded Mr. Drilon's
statements as "traditional" application of pressure tactics for
the House to work faster.

After the department-by-department hearings, which are
expected to conclude by the end of October, he said, the
proposed budgets of the offices and agencies under each
department will next be subjected to the scrutiny of the
subcommittees of the committee on appropriations. The latter
process is expected to end in November, and floor debates will
start after this. The House will send the approved budget to the
Senate by December, and the bicameral conference committee can
be convened by January. President Gloria Macapagal-Arroyo can
sign the GAA into law in February, he said. "The Senate can
argue that it will be getting the budget bill late from the
House this year," Mr. Andaya said. "The House got it from
Malacaņang a month after the
State of the Nation Address, a buzzer-beater, but we ain't
complaining."
-- reports fromJeffrey O. Valisno, Carina I.
RoncesvallesandJudy T. Gulane

The Department of Finance (DoF) has lowered its proposed rate
by which the excise tax on alcohol, cigarette and tobacco
products will be increased next year. Instead of the 30.1%
previously sought, the DoF now wants a 20% increase and the
indexation of the tax rates every two years thereafter, using
the cumulative inflation of the two immediately preceding years.
It also proposed to maintain the existing tax rate structures
for cigars, cigarettes and fermented liquor, and one tax
structure for distilled spirits. The decision, Finance Secretary
Juanita D. Amatong told the House of Representatives committee
on ways and means, was arrived at after consultation with other
economic advisers and after taking into consideration
stakeholders' positions.

A 20% increase on existing tax rates will increase the tax on
cigars to
PhP1.34 per cigar from PhP1.12, and cigarettes packed by
hand to PhP0.48 per pack from PhP0.40. For cigarettes packed by
machine, if the net retail price (NRP) is more than PhP10, the
tax will increase to PhP16.12 per pack from PhP13.44. If the NRP
is between PhP6.50 to PhP10, the tax will increase to PhP10.75
per pack from PhP8.96; to PhP6.72 per pack from PhP5.60 if the
NRP is between PhP5 to PhP6.50; and to PhP1.34 per pack from
PhP1.12 if the NRP is less than PhP5. Estimated revenues from
the 20% increase on cigarettes -- whether packed by hand and
whether high-priced, medium priced or low-priced -- is PhP24.4
billion in 2005, based on total 2003 tax collections of PhP19.7
billion.

For fermented liquor, the tax rates will increase to PhP8.27
from PhP6.89 for brands with an NRP of less than PhP14.50 per
liter; to PhP12.30 from PhP10.25 for those belonging to the
PhP14.50-to-PhP22.50 bracket; and to PhP16.33 from PhP13.61 for
those belonging to the PhP22 and above bracket. Estimated
revenues from fermented liquor will be PhP13.9 billion in 2005,
based on total 2003 tax collections of PhP11.4 billion. House of
Representatives ways and means committee chairman Rep. Jesli A.
Lapus of Tarlac (Central Luzon) noted, however, that the DoF's
revenue estimates were low because they were based on 2003
collections. Ms. Amatong told Mr. Lapus that the DoF will be
presenting new estimates. For distilled spirits, the DoF
proposed to remove distinctions between brands derived from nipa,
coconut, cassava, camote, buri palm and sugar cane, and those
produced using other raw materials.

Under the present tax structure, brands derived from nipa,
cocounut, cassava, camote, buri palm and sugar cane are taxed
PhP8.96 per proof liter, while those using other raw materials
are taxed according to this schedule: PhP84 if they cost less
than PhP250, PhP168 if they cost between PhP250 to PhP675, and
PhP336 if they cost more than PhP675. The DoF proposed to
institute just one tax structure for distilled spirits. If the
NRP per 750 milliliters is less than PhP60, the tax will be
PhP50.40; PhP100.80 if the NRP is between PhP60 and PhP250;
PhP201.60 if the NRP is between PhP250 to PhP675; and PhP403.20
if the NRP is more than PhP675. The DoF did not present revenue
estimates from the change in the tax structure of distilled
spirits. For sparkling wines with NRP of PhP500 or less, the DoF
proposed to increase the tax to PhP134.40 from the present
PhP112, and to PhP403.22 from the present PhP336 for sparkling
wines with NRP of more than PhP500. The tax on still wines with
14% alcohol or less will be increased from PhP13.44 to PhP16.13,
while tax on still wines with more than 14% alcohol will be
increased to PhP32.26 from PhP26.88. -- Judy
T. Gulane

... verdict
known this week

A FitchRatings team led by senior sovereign analyst for the
Philippines Brian Coulton is in the country to look into the
progress of key revenue measures seen necessary to addressing
the country's fiscal problems. Bangko Sentral ng Pilipinas
(Central Bank of the Philippines, or BSP) Governor Rafael B.
Buenaventura said the country cannot afford a downgrade by the
credit ratings firm since it would further shoot up government's
borrowing costs. Before meeting with FitchRatings yesterday, Mr.
Buenaventura said that he would tell officials of the agency to
wait for lawmakers fulfill their commitment to pass at least
four tax measures by yearend. "The lawmakers have said that it's
as good as done. So I will tell them to wait and see and give
lawmakers a chance to pass [the measures]," he told reporters.

Lawmakers said they may approve four of eight proposed
revenue measures this year: the rationalization of fiscal
incentives, indexation of excise taxes on sin products, grant of
a tax amnesty, and a lateral attrition system. Fitch maintains a
'BB' grade with a stable outlook on the Philippines but stressed
in July the need to show progress in key reforms by end-2005.
The Fitch team was unavailable for comment as of press time
yesterday. Philippine Investor Relations Office executive
director Corazon P. Guidote said results of the review will be
presented this week. Moody's Investors Services will also arrive
next month to review the progress of the government's reform
program that includes a package of key tax measures.

A credit downgrade makes it more expensive for the
Philippines to borrow, as it reflects the country's ability to
pay its debts. It also increases the costs of doing business in
the country. Ms. Guidote said credit rating agencies need to see
enough improvement in the government's efforts to raise new
revenues before upgrading the country's credit rating. The
Macapagal-Arroyo administration is asking Congress to pass eight
revenue measures that are expected to raise
PhP83 billion annually. Moody's downgraded the Philippines'
credit rating last January to 'Ba2' from 'Ba1', with a negative
outlook. A Ba or speculative grade means that the borrower has
substantial credit risk, particularly as a result of adverse
economic change over time. Standard & Poor's Ratings Services
has already warned the Philippines of a downgrade, citing the
lack of progress on key revenue measures. The credit rating
agency noted two weeks ago that President Gloria Macapagal-Arroyo's
new term, which began July 1, is already approaching its
six-month mark and yet it has not been able to push for new
measures. In July, S&P downgraded its credit rating on the
Philippines' long-term local currency to 'BBB-', which is the
lowest investment grade, from 'BBB', citing the government's
fiscal woes. It kept the foreign currency rating at 'BB' or
speculative, which means that there are substantial credit risks
for borrowers. -- Iris Cecilia C. Gonzales

Philippine growth this year could come slightly below the
government's revised forecast of 5.9% to 6.1% this year,
Singapore's United Overseas Bank (UOB) Group said. In its fourth
quarter report, UOB said it expects Philippine economic growth
-- as measured by gross domestic product (GDP) or the value of
goods and services produced within the country -- at a lower
5.4% for 2004. Rising headline and core inflation, meanwhile,
may pressure the Bangko Sentral ng Pilipinas (Central Bank of
the Philippines, or BSP) to increase its overnight rates by at
least 25 basis points this year.

The headline inflation rate, or the year-on-year change in
the consumer price index, is expected to rise to 5.2%. "Monetary
tightening is unlikely to derail the positive economic outlook,"
UOB said. The peso, meanwhile, will "likely to remain on the
defensive" due to debt and fiscal gap concerns. "We expect US
dollar/Philippine peso to continue trading in the upper half of
the PhP55-to-PhP57 range in the fourth quarter with rise capped
by overseas workers' remittances ahead of the festive season and
an expected 25 basis points BSP tightening before yearend," the
bank, Singapore's third largest lender, said. Testing of higher
levels is likely as the "weak market undertone can be easily
exaggerated by the slightest signs of fiscal slippage", although
UOB said the central bank will likely prevent the currency pair
from "stretching too far." Taking into account that falling
foreign reserves will limit central bank's ability to prop up
the peso and slow down in exports growth, UOB said sentiment on
the local currency should remain weak going forward.

With Arroyo administration's commitment to trimming the
budget deficit, UOB said meeting the current year target should
be peso positive. "Unless the government trims the ballooning
deficits rapidly, this supporting factor is only transitory in
nature. Philippines is clearly caught in a debt trap. Total
outstanding debt has risen to
PhP3.5 trillion [74% of GDP] by end June 2004, up 5.4% since
end-2003," the report read. The fiscal gap, which indicates
government spending in excess of its revenues -- is closely
watched by many investors due to its impact on borrowing and
interest rates. UOB said there is a good chance the central bank
may take a "slightly more agressive" stance to rein in
inflationary pressures. Last year's PhP199.9-billion deficit
narrowly beat the PhP202-billion ceiling. The government aims to
reduce this year's budget deficit to PhP197.8 billion.
-- R. A. M. Rubio

By IRA P. PEDRASA,
Reporter

Bond market players are set to ask the Bureau of the Treasury
for a review of newly issued requirements that limit the
participation of some government securities eligible dealers or
GSEDs in debt auctions. But there are some traders have welcomed
the circular, viewing it as "a professionalization of the
market." Those who oppose it see it as a hindrance for small
banks to participate in the capital market.

Last October 11, the bureau came out with Treasury Memorandum
Circular No. 2-2004 that lists the requirements and obligations
of primary and ordinary dealers -- who were previously
classified either as GSEDs or non-GSEDs. According to the
circular, primary dealers are GSEDs accredited by the Treasury
to bid competitively in the primary market auction of government
securities while ordinary dealers are GSEDs accredited to
participate in the auction by submitting noncompetitive bids.
Competitive bids in regular auctions allow GSEDs to put in money
and ask for rates. Noncompetitive bidders can only put in a
certain value. The circular also prescribes that a primary
dealer should have total awards of at least 2% of the total
amount of Treasury bills or bonds awarded within a particular
quarter; otherwise, they pay a corresponding penalty. Also, the
circular increases the volume of competitive bids to 75% of the
total tender from 60% while reducing noncompetitive bids to 25%
from 40%.

In a quarter, the Treasury auctions around
PhP120 billion in government debt, with GSEDs -- mostly banks --
submitting their bids, which are either partially or fully
rejected by the auction committee, effectively trimming the
awarded volume. The circular requires primary dealers to corner
at least 2% of that pared volume. Those who fail to meet the
minimum have until the first month of the following quarter
within which to satisfy the 2% mandatory requirement for the
four-month period. Primary dealers who fail to do so will be
dropped from the Treasury's roster and will be classified as an
ordinary dealer for a minimum of 12 months. "That is quite a big
volume for primary dealers. It might not be sustainable for
small banks to comply. Say, PhP9 billion of the total awards
within a quarter should be coughed out by each primary dealer?
We do not even understand if the 2% requirement will be against
the full total awards or the 75% competitive bids," a trader at
a local bank said. "At the minimum, the circular does not answer
small details. But when you look at it, eventually, this will
hamper the competitiveness of small banks," the trader added.

Earlier, former National Treasurer Mina C. Figueroa said
banks have to prop up the volume of bids or otherwise be
delisted as a main GSED. This came after interest rates have
steadily moved up despite undersubscribed bids against an
offering size. In past auctions, she said there were around 40
GSEDs participating in auctions with only around seven active
players. Ms. Figueroa said the Treasury was giving banks the
option to be classified in either of the two "so as not to be
accused of unilaterally deciding what they should be." A trader
said the circular could result in primary dealers concentrating
solely on auctions. "What will happen to the secondary market?
We will get burned from marked-to-market losses," another trader
added. However, a trader at a foreign bank said "being a GSED is
not a free ride, we have big obligations. We have to be in the
auction all the time. Sometimes, others become lax. Others just
give throwaway bids. Others simply do not participate. At least
with the circular, others can maintain their dignity because
they can only be categorized as a primary or ordinary dealer...
If they will complain, they might be guilty."

As primary dealers, banks have the following privileges
besides the eligibility to participate in the competitive
bidding of regular issues.

Eligibility to participate in the issuance of special
issues such as retail T-bonds, promissory notes,
dollar-linked peso notes, zeroes;

Eligibility to act as underwriter, arranger and
financial advisor of securities issued by the national
government;

Eligibility to access the tap facility window;

Eligibility to purchase from/sell to the bond sinking
fund; and

Other incentives and privileges provided by the
Treasury.

"What if small banks can't make it as primary dealers?
Wanting to go into government securities still, such banks may
crowd the noncompetitive bids. And it's just 25%?" the trader
said. While traders said they understand the government's need
to cover budget holes through the help of the circular, they
said the 2% requirement should be reduced. The circular will
take effect on the first business day of December, and banks'
performance will be evaluated starting from the first quarter of
2005.

HONG KONG -- Asian dollar bond spreads held steady yesterday
with more than $2 billion in fresh debt set to hit the market
this week already factored in, traders said. October issuance is
expected to drop sharply compared with more than $5 billon in
September, leaving traders looking for trading cues. "The market
has been range-trading for a while. I think there is a lack of a
catalyst in the market. Supply wise, there is not a whole lot in
the near term," said Lloyd Ong, regional credit analyst at BNP
Paribas. "The market on the whole is actually quite stable and
grinding slightly tighter. I think going into the year end, we
will see the market continue to be well supported," he said.
China is to market a dual-tranche sovereign bond worth the
equivalent of $1.7 billion to Europe this week after presenting
the issue to investors in Hong Kong on Friday. The deal,
comprising a 1 billion euro, 10-year tranche and a $500 million,
5-year tranche, is set to be priced later this week. It will be
Beijing's second global bond issue in as many years, and
analysts said the deal would provide a yield benchmark that
Chinese companies could use when they tap offshore debt markets.
The offering has a larger portion in euros compared with
previous issues, which could attract more European-based
customers and expand China's traditional profile of investors.

China last sold US$1 billion in 10-year and 400 million euros
in 5-year bonds in October 2003. China's sovereign dollar bonds
due in 2013 were stable at 73/65 basis points (bps) over
comparable US Treasuries. South Korea's Chohung Bank will begin
marketing a $400 million, 10-year subordinated bond in Hong Kong
on Wednesday, a market source said. Investor presentations will
move to Singapore on Thursday, London on Friday and New York on
Oct. 25. Pricing of the deal, which includes a call option after
five years, is expected shortly after the roadshow. Chohung is a
unit of Shinhan Financial Group, South Korea's second-biggest
financial services group. South Korean sovereign dollar bonds
due in 2014 were steady at 83/78 bps over comparable Treasuries.

Philippine sovereign dollar bonds due in 2014 were unchanged
at 474 bps over Treasuries. "The market is looking for more
signs as to where [Philippine sovereign] bonds are going to
trade. No one wants to take any aggressive positions," a
Manila-based trader said. -- Reuters

Moving within a range of PhP56.40 to PhP56.42, the Philippine
peso yesterday closed a shade stronger against the greenback in
lackluster trading. "The market awaits fresh leads to push a new
range projection," a trader said. The trader attributed the
"lack of inflows and outflows" yesterday to the balance between
a weak dollar and domestic concerns that have pressured the
local unit to match its all-time low last week. World market
analysts said the dollar could further fall if the country would
not be able to finance its gaping trade deficits. The peso fell
to new lows against major currencies because of a
weaker-than-expected industrial output as well as diminished
consumer confidence. Outputs only went up by 0.1% in September.
The Japanese yen was at the 109.25 level at the last count
compared with 109.33 during Friday's late trading.

At the local front, traders said corporate dollar users seem
quiet. "But the banks would still be always onhe lookout for
surprises," a trader at a local bank said. Total volume of
transacted dollars dropped to $122 million from $140.5 million
last Friday. Fitch Ratings Services officials are expected to
arrive this week and check on the country's progress in pushing
revenue measures. A credit downgrade from ratings agencies last
week affected the peso, which weakened to its record low of
PhP56.45.

Officials of the Bangko Sentral ng Pilipinas will meet on
Thursday to decide on the direction of key rates. The trader
said while the central bank has reiterated that it will hold off
a hike in overnight rates this year, "the market will always
wait [for any changes]." At the Philippine Dealing System, the
country's electronic currencies exchange, the peso averaged
stronger by five centavos to PhP56.407 from PhP56.412
previously. The local unit capped its intraday high at its
opening value of PhP56.40. It eventually settled at PhP56.41
against the greenback from PhP56.425 previously. "Expect the
peso to remain range-trading today at the PhP56.40 to PhP56.45
levels," the trader said. -- Ira P. Pedrasa

In compliance
with court order

By KRISTINE L ALAVE

Negros Navigation Co. (Nenaco) President and Chief Executive
Sulficio O. Tagud, Jr. stepped down from his post last Friday in
compliance with a Manila court order for the approval of the
shipping firm's rehabilitation plan. On Oct. 7, Manila Trial
Court Judge Artemio S. Tipon directed the company, a subsidiary
of listed Metro Pacific Corp., to replace Mr. Tagud if it wants
to continue its corporate rehabilitation. "In choosing the
directors to be replaced, priority must be given to Sulficio
Tagud, Jr.," Mr. Tipon said. Mr. Tipon also ordered the company
to elect three creditor-representatives to its board to look
after the interests of both secured and unsecured creditors.

Mr. Tagud, formerly Nenaco's rehabilitation receiver, has
been under fire for not revealing to the court that he once
served as director of Bonifacio Land Corp., which was owned by a
consortium that included Metro Pacific, when he was appointed as
rehabilitation receiver. According to the court, this posed a
conflict of interest on Mr. Tagud's part. Mr. Tipon expressed
dismay at Mr. Jacob's appointment as president in August, noting
the firm's move was "duplicitous." The judge said Mr. Tagud has
been groomed as president all along even when he was the
receiver.

In his order released yesterday, Mr. Tipon said the company
"complied substantially" with the conditions, after the court
was informed officially of Mr. Tagud's resignation yesterday.
Mr. Tipon said he was pleased with the election of Renato A.
Castillo, Wellington Q. Aldemita, and Arlyn C. Soresca to the
Nenaco board, after the firm held a special meeting on Oct. 11.
Mr. Castillo, senior vice-president of the Development Bank of
the Philippines, was the bank's nominee, while Mr. Aldemita was
the nominee of Pilipinas Shell Petroleum Corp. Both represent
secured creditors. Ms. Soresca, representing the unsecured
creditors, is a lawyer and a nominee of Unique Machine Shop.
In an interview with BusinessWorld, David Nugent, Metro
Pacific's senior vice-president for communication, clarified
that no one stepped down from the board to make way for the
three new members, as there were vacancies in the first place.
Nenaco's board has 13 members, he said. Nenaco, the country's
second largest shipping firm, filed for corporate rehabilitation
on March 29. The court approved the company's 10-year corporate
rehabilitation plan on Oct. 5. The shipping firm's debts had hit
PhP2.5 billion and the firm said its financial woes could be
traced to a decrease in passenger volume and to the 1997 Asian
financial crisis, which increased interest rates and operating
costs.

By ROULEE JANE F. CALAYAG

Negros Navigation Co., Inc. (Nenaco) yesterday filed a
petition to have its shares delisted from the official registry
of the Philippine Stock Exchange (PSE). "As a private company,
Nenaco will be able to effect the many changes it intends in
order to rebuild our business, stabilize our financial
foundation and reposition the company for future growth,"
Willard G. Mosquito, corporate information officer, told the
exchange. He also asked the exchange to consider the delisting
of Nenaco in view of its 10-year rehabilitation plan approved on
Oct. 4 by the Manila Regional Trial Court. "We also ask [the PSE
Listings] committee to consider the unique circumstances of our
rehabilitation program and ask your assistance in achieving
approval of this delisting in as expedient a manner as
possible," wrote Mr. Mosquito, adding that they "do not discount
the possibility of returning to the market at some point in the
future." The petition was in line with a tender offer by parent
Metro Pacific Corp. to buy back the 85 million remaining shares
equivalent to 2.81% of the outstanding capital stock for PhP0.16
each at PhP13.6 million.

The tender offer will start tomorrow and end on Nov. 17.
Every Nenaco shareholder on record as of Oct. 15 is entitled to
tender all or a portion of their shares for acceptance and
purchase by Metro Pacific. Metro Pacific, which currently owns
97.19% or 2.9 billion shares of Nenaco, will pay through ATR-Kim
Eng Securities, Inc. the tendered and accepted shares on Dec. 3
-- the 12th business day after the close of the tender offer. He
said the tender offer will help Nenaco to implement its
rehabilitation plan. "We understand that Metro Pacific has
decided to effect this tender to Nenaco's remaining shareholders
in an effort to assist us in implementing our rehabilitation
program. We believe that the tender offered by Metro Pacific is
a fair and clear exit mechanism for their investments, which
have depreciated in value over the past several years," Mr.
Mosquito said. Nenaco's shares began trading in 2002, reaching
the highest price of PhP1.70 each on the first quarter and the
lowest of PhP0.07 in the same period. Nenaco's stock price
hovered at the range of PhP0.33-PhP0.55 per share in 2003 before
the PSE suspended trading last March.

By FELIPE F. SALVOSA II and
IRIS CECILIA C. GONZALES, Reporters

With the acquisition of National Steel Corp. completed,
Indian-owned Global Steelworks International, Inc. yesterday
vowed to turn the Iligan-based steel plant into a "world-class"
facility and a major contributor to the national economy. In a
statement, Global Steelworks said it has so far spent
PhP900 million ($16 million) for the rehabilitation of the steel
plant and equipment. Work on the 40-hectare complex began last
Feb. 1 and is nearly completed. Global Steelworks said the
investment went to expenses on spares, maintenance work,
consumables, and labor. The amount is on top of the total
PhP13.25 billion Global Steelworks will pay for the acquisition.

Creditors of National Steel and Global Steelworks closed the
deal last Friday with two remaining hitches finally resolved: a
certificate of eligibility for incentives under the Special
Purpose Vehicle Law from the Bangko Sentral ng Pilipinas
(Central Bank of the Philippines), and an assurance from the
National Power Corp. that it won't run after Global Steelworks
for National Steel's obligations. Iligan city officials have
also struck a deal with the creditors to collect only the
principal amount of back taxes owed by the steel firm. "The
Iligan City government and the National Power Corp. have
confirmed that [Global Steelworks] has no obligation for the
payments [National Steel] owes them, as they are matters to be
settled among the [National Steel] liquidator, the creditor
banks and the claimants," Global Steelworks said. The asset
purchase deal was signed last Sept. 10, after which Global
Steelworks delivered as promised a
PhP1-billion down payment. Installments will me made over an
eight-year period. "With all these formalities now out of the
way, operations of the Iligan plant can move forward at full
steam," Global Steelworks President Sushant C. Das said. The
company cited a trial order shipment of 5,600 metric tons of
cold rolled coils worth more than $3.9 million to China last
month "as a token of the economic benefits the rehabilitation of
the mothballed plant could bring to the national economy."
Meanwhile, the BSP said the sale of National Steel to the Global
Group is a legitimate special purpose vehicle transaction.

CONTRARY

This is contrary to claims by a law firm that it was illegal
for the BSP to certify the sale of National Steel as eligible
under the Special Purpose Vehicle or SPV Law. The transaction is
covered by the SPV law, which grants tax exemptions to SPVs that
acquire or invest in non-performing assets. National Steel shut
down its Iligan plant in 1999 after it failed to settle loans to
creditors. The Roque, Butuyan Law Office, however, maintained
that National Steel is not a qualified financial institution
under the SPV law. Only the BSP, banks, financing companies,
investment houses, government financial institutions, government
corporations and quasi-banking institutions are qualified to
avail of SPV perks and exemption privileges.

The BSP, however, said in a letter to the law firm that based
on its legal review, the sale is in accordance with the SPV law.
"We wish to clarify that the transactions in issue involve the
sale of non-performing loans of secured financial creditors of
National Steel to two SPVs," said BSP Assistant Governor and
General Counsel Juan de Zuniga. He added the transactions fall
under the implementing rules of the SPV law. "Moreover, the
selling financial institutions including banks, will sell
absolutely and unconditionally, their NPLs [non-performing
loans] to the SPVs. The absolute and unconditional sale of the
NPLs does not include any buyback arrangement by which said NPLs
would revert back to the creditors," Mr. de Zuniga said. As
such, he said the transaction is a "true sale," contrary to the
claims of the law firm. The two SPVs are Global Ispat Holdings,
Inc. and Global Steelworks International, Inc. The Global group
said the transaction already met all the necessary approvals
including those of the BSP, the Securities and Exchange
Commission, the National Power Corp., and the local government
of Iligan.

Fastfood firm Jollibee Foods Corp. said on Monday its net
earnings growth slowed sharply in the third quarter as high oil
prices pushed up costs. The company said in a statement that
preliminary figures showed its quarterly net profit reached
PhP317 million ($5.6 million), up 6% from
PhP298 million in the year ago period. That marked a sharp
slowdown from profit growth of 36.8% in the second quarter.
"That's bad for the stock," said Jose Vistan, an analyst at AB
Capital Securities. "The expectations were at least double-digit
growth for the quarter. "The earnings are disappointing but we
still like the company's financial standing, especially with
high levels of retained earnings," he said.

The company, which vastly outsells McDonalds and KFC locally,
said net income for the January-September period reached
PhP1.17 billion, up 28% from a year ago. The firm will disclose
its final third-quarter net income figures on or before a Nov.
15 deadline. "The cost of packaging materials, utilities, and
certain raw materials rose rapidly in August and September,
driven mainly by the increase in the price of petroleum," Chief
Finance Officer Ysmael Baysa said in the statement. "We made
slight price adjustments on our products and continued pursuing
cost improvement on our operations, but they were not sufficient
to immediately offset the impact of cost increases," he said.

Jollibee, which started as an ice cream house but shifted to
hamburgers and chicken, has raised prices four times so far this
year, with each increase averaging about 2% or less. The
company, which has expanded into pizza, pasta, cafe-bakery and
Chinese food, said group-wide sales climbed 24.5% to
PhP8.6 billion from a year ago in the third quarter. The firm
said sales growth was higher in the central Visayas region and
the southern island of Mindanao, "most likely on account of
strong output and prices of farm produce." Jollibee said its
Yonghe King fastfood chain in China posted 35.9% sales growth in
the third quarter from a year earlier. As of end-September, the
group had 1,008 stores locally and 120 stores abroad. Jollibee
shares climbed 8.3% in the third quarter against the 11.5% rise
in the main index. The stock added 1.79% yesterday compared to
the 0.48% climb in the index. -- Reuters

By JENNEE GRACE U. RUBRICO,
Senior Reporter

Leading appraisal company Cuervo Appraisers, Inc. is bidding
for the contract to appraise the value of state-owned
transmission company National Transmission Corp. (Transco). At
the same time, the company is looking at offering its valuation
services in China and other countries in Southeast Asia. In an
interview, Federico C. F. Cuervo, president, said the company
has submitted its bid for the Transco contract. The contract
involves appraising Transco's transmission assets. This is to
assess how much the company's assets are worth in preparation
for privatization. "We are bidding for the [appraisal of the]
Transco transmission assets. We can do it. We are ready to get
the job," he said. Mr. Cuervo said local appraisers are more
qualified than foreign appraisers for the job because they know
the Philippine setting. He said foreign appraisers will just
hire local appraisers to do the valuation for them if they get
the job. He added that besides Cuervo Appraisers, Asian
Appraisers is also bidding for the contract.

The government is set to privatize the operations of Transco,
the spin-off company which handles the transmission functions of
the National Power Corp. As provided for under the Electric
Power Industry Reform Act, Transco's operations will be given to
the private sector. However, ownership of the company and its
transmission assets will remain with the government. However,
the valuation of Transco has not yet been finalized.

BIG MARKET

Meanwhile, Cuervo Appraisers is eyeing appraisal contracts in
other parts of Southeast Asia. "We want to compete. We can
compete with our expertise and also at cost. If they are using
Australia and American appraisers, those entail higher costs,"
he said. "There's a big market for this. I've been going around
the region promoting the appraisal business," he said. He said
that by next year, Cuervo Appraisers will be going full scale on
the expansion. "There will be an appraisal Congress and it will
be an opportunity to promote the Philippines," he said. The 14th
ASEAN Appraisers Pre-Congress will be held in the Philippines in
April next year. Simultaneously, the first Philippine Appraisers
Congress will also be held, Mr. Cuervo said. The two events will
be a venue to discuss the role of ASEAN appraisers in attracting
foreign direct investments, he added.

The Manila Electric Co. (Meralco) is seen to generate savings
of PhP1.37 per kilowatt-hour once power plants of its
independent power producer First Gas Power Corp. are allowed to
run over and beyond their contracted capacity of 83%. This, in
turn, is expected to translate to savings of at least 20-30
centavos per kWh for Meralco customers. Meralco contracts 20% of
its power requirements from First Gas. "Once plants are allowed
to increase dispatch beyond 83%, this can translate to savings
of PhP1.37 per kWh between Meralco and First Gas," First Gas
Chief Executive Peter D. Garrucho, Jr. told reporters. Meralco
customers may avail of the savings up to 2011.

Meralco gets bulk of its power supply from state-owned
National Power Corp. (Napocor), while the remaining supply is
being secured from its contracted IPPs such as First Gas Power,
Quezon Power Philippines Ltd. Co. and Duracom Power. Mr.
Garrucho said if the Sta. Rita natural gas-powered plant and
500-megawatt San Lorenzo natural gas-powered plant in Batangas
would be dispatched beyond their minimum energy quantity of
about 83% of their installed capacities, more savings could be
generated. The minimum energy quantity dispatch of the IPPs has
been a significant part of the amendments set in the power
supply deal between Napocor and Meralco which is now pending
approval by the Energy Regulatory Commission (ERC). The limited
dispatch of the natural gas facilities was partly due to the
congestion in the transmission line of Napocor but is now being
addressed by spinoff firm National Transmission Corp. Transco is
currently pursuing its long-delayed Batangas Transmission
Reinforcement Project and the uprating of the Biņan-Dasmariņnas
line to solve congestion in key transmission lines where the
output of the gas plants would be transmitted.

IMPROVED DISPATCH

The savings could be generated from an improved dispatch from
the current 60%-70% to about 92% and once the ERC approves
amendments to the purchased power agreement with Meralco. Upon
amendment to the deal which Meralco filed with the ERC, the
shortfall capacity can be recovered until 2011. Acceptance short
fall is the portion of the fixed charges that has already been
paid for by Meralco but is yet to be utilized. If only 70% of
the contracted output of 83% would be used, a remaining 13%
which was already paid for can be tapped by the consumers, Mr.
Garrucho said. -- Bernardette P. Sto. Domingo

By ROULEE JANE F. CALAYAG,
Reporter

Trading was brisk yesterday as the equities market moved
forward with some gains from early positioning by investors who
expected good corporate earnings data. Reversing its earlier
losses, the Philippine Stock Exchange composite index (Phisix)
went up 8.57 or 0.48% to 1,789.98, a far cry from Friday's
decline of 15.89 to 1,781.41. As third-quarter earnings reports
began to trickle in, investors seemed to have found an anchor
for their expectations which could rev up trading in the market
in the coming days. Jose Vistan, Jr., research director of AB
Capital Securities, Inc., said the market was basically in
another consolidation mode. "The local equities market inched up
in another day of consolidation," said Mr. Vistan.

TOP 20 STOCKS

The gains may not have been spectacular as projected by most
analysts but it put back enthusiasm among investors. The surge
in optimism was obvious in the list of top 20 active stocks
where majority went up, only two ended lower, and five were
unchanged. The Philippine Long Distance Telephone Co., which
remained the widely traded stock, was unchanged at PhP1,425 but
it accounted for a market share of 34.63% on 170,000 shares
traded for
PhP243.3 million. Ayala Land, Inc. followed, finishing stronger
at PhP6.90 on 15.4 million shares valued at PhP106.3 million.
But its market share was only 15.13%. DMCI Holdings, Inc. was
next in line, closing higher at PhP2.70.

Metro Pacific Corp. slid to the fourth slot but it finished
on the positive side at PhP0.44 with 94.5 million shares trading
for PhP43.4 million. The holdings firm of Hong Kong-based First
Pacific Co. in the Philippines has tendered an offer to buy back
shares of its debt-saddled shipping subsidiary, Negros
Navigation, Inc. (Nenaco). The offer was necessary for the
delisting of Nenaco from the exchange's official registry.
Nenaco yesterday filed a petition for the delisting of its
shares which stopped trading last March. It said while it does
not discount the possibility of listing in the future when it
regains its financial health, it would be to the best interest
of stockholders to have a fair and clear exit mechanism for
their investments whose values have been depreciating over the
years.

Bank of the Philippine Islands, the oldest banking
institution in the country, was the fifth actively traded stock.
Its price was unchanged at PhP47. The exclusive list of the
market's best performers showed a sprinkling of stable stocks
that hold promise based on their strong fundamentals. These
include the Gokongweis' Digital Telecommunications, Inc., the
Lopezes' ABS-CBN Holdings Corp., Philippine Deposit Receipts,
Ayala Corp. and its telecommunications arm Globe Telecom, Inc.,
and Jollibee Foods Corp., the country's leading fastfood chain.

Jollibee yesterday released its third-quarter report with
results expected to encourage investors even more. The food
company -- which was incorporated in 1978 and whose primary
interests are in developing, operating and franchising fastfood
stores under the trade name "Jollibee" -- reported a 24.5%
increase in sales for the third quarter. It said it maintained
the strong growth in the first two quarters as third-quarter
sales rose to PhP8.6 billion. However, its net income was up by
a modest 6% to PhP317 million due to high costs in August and
September. Sales of Jollibee's Yonghe King business in China
grew rapidly by 35.9% for the same period. Jollibee operates the
country's largest food service chain, with 1,008 stores as of
Sept. 30. These include 478 Jollibee stores, 276 Chowking
branches, 226 Greenwich and 28 Delifrance outlets. It has 120
stores abroad -- 89 for Yonghe King, 23 for Jollibee, and eight
for Chowking.

GAINERS

The gainers, led by DMCI Holdings, Inc., were composed mostly
of stocks of holdings firms with some from the mining, real
estate and construction, and food and beverage sectors. Interest
in mining continues despite a temporary drop with investors
looking at the stocks as a possible hedge against inflation and
increasing oil prices. At the stock market, advancers were ahead
of decliners at 33-25 but the unchanged issues gained the upper
hand at 51. All 109 issues saw some action in 2,636 trades.
Around 1.8 billion shares exchanged hands for PhP702.5 million.
Only the commercial-industrial and the property counters
reflected positive sentiment. Property blazed the way with gains
of 13.35 at 648.28. The commercial-industrial was equally upbeat
as it rose 8.78 to 2,829.57. Mining swerved to the negative
territory, overwhelmed by a volley of optimistic projections. It
slipped 64.26 to 2,140.55. Banks and financial services dropped
0.19 to 499.63. Oil was down 0.05 to 1.80. The all-shares index
weakened by 8.42 to 1,110.22.

There was still net foreign buying at the stock market. Total
foreign buying was at PhP408.7 million with foreign selling
reached PhP384.8 million. The market may likely try to snap up
some gains through the week, although prospects of some low
sessions are not discounted. "The market will continue to
consolidate amidst the uncertainties of oil and optimism of
third-quarter earnings," said Mr. Vistan. Investors, he added,
are expected to continue to position in select stocks ahead of
the release of corporate results later this month. He warned
that with the uptrend in oil prices, investors may take profits
quickly.